IDB grants and loans

Feb 06, 2023 Letters

Dear Editor,

I refer to your article (KN 1-31-2023) captioned, ‘High interest rates on loans ‘killing’ small businesses’ in which it is reported that Guyana’s largest microfinance institution IPED and SBB reach less than 1% of Guyana’s micro enterprises with micro loans and grants. It is also reported that the IDB stated that access to loans in Guyana is weak compared to the region, noting that some of the reasons for this state of affairs are related to high interest rates, as much as 52 percent; the lack of adequate collateral; and high operational cost, among other constraints.

In advancing a solution to these interrelated problems, it is reported that the IDB is expected to provide Guyana with US$700,000 ($147M) to help support the growth of 300 microenterprises across the country via the delivery of skills training and mentorship.

After reading this article, I recall that the IDB in 1993 (30 years ago), instead of augmenting the training and mentorship of the staff of GAIBANK, recommended to the Government of Guyana that GAIBANK be closed. The IDB at that time depended on a report that was prepared by CARANA Corporation, a consulting firm the IDB hired to examine the operations of GAIBANK. Interestingly, this consulting firm, apart from providing an incorrect diagnosis, recommended that local and foreign commercial banks in the private sector could perform a more efficient function than GAIBANK, even though the private banks were highly risk averse, targeting Government Treasury Bills as their main investment instruments, together with loans to a few, fully collateralized and established borrowers.

Based on my first-hand experience of working in financial markets in Guyana, I know that asset-based lending in Guyana will never reach the small entrepreneurs and farmers who have experience and knowledge of the technical aspects, but they lack financial collateral that commercial banks prefer. In particular, these small farmers and microbusinesses save their wealth in livestock, crops, land and other home-based assets that are second best assets to pure financial assets. Consequently, working with these small businesses require a different model and approach. Meanwhile, it would be interesting to ascertain the shares of the total commercial bank portfolio that are invested in the various sectors in the economy, and to identify the lending terms and amortization periods approved for these loans. Perhaps the Bank of Guyana can publish these data. While much more can be said on this matter, and acknowledging that the demand for credit across many sectors are increasing, I would contend that skills training and mentorship, although important, would not be sufficient to resolve the problems in financial markets in Guyana.

Sincerely,
Dr. C. Kenrick Hunte
Professor and Former Ambassador

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